On Oct. 28, Nio (NYSE:NIO) CFO Louis T. Hsieh tendered his resignation. Although Nio’s press release stated the finance executive was leaving for personal reasons, owners of Nio stock must know in their heart of hearts he jumped ship because he couldn’t take anymore groveling for financing to keep the maker of electric SUVs afloat.
The news can’t be good for the Nio stock price. Can it?
No, it can’t, although Nio’s managed to rally by 50 cents in the 11 days since Hsieh’s resignation was announced. I guess the truly hopeful believes the savings gained from not having to pay the CFO’s salary is enough to keep the lights on at Nio headquarters.
If Hsieh’s smart, he’ll make a beeline for Tesla (NASDAQ:TSLA) or one of the other automotive companies manufacturing in China.
Negative Sentiment Clouds NIO
Last month, I suggested that aggressive investors ought to find other high-risk stocks to speculate on. That’s because the electric SUV manufacturer was going to generate huge losses in the third quarter despite announcing higher Q3 2019 deliveries, ahead of its earnings announcement later this year.
Hsieh’s resignation certainly didn’t help the cause.
This is a company that’s financially broken. Since my Oct. 16 article, InvestorPlace has published something like 11 articles about Nio. Only three of them have anything flattering to say about the company. Talk about piling on.
But when the shoe fits, wear it. And things aren’t getting any easier for Nio.
The Chinese Association of Automobile Manufacturers reported Nov. 11 that electric vehicle sales in China in October fell 47.3% to 59,000 while production fell 33.3% to 78,000.
Year to date through the end of October, the sale of electric vehicles increased 15% over the same 10 months last year to 750,000 vehicles. In terms of production, 795,000 vehicles were produced in the first 10 months of the year. That was 18.4% ahead of last year.
So, while it’s not all bad news for Nio in 2019, the entry of Tesla into the marketplace — Tesla’s already started trial production at its Gigafactory in Shanghai — isn’t going to make it any easier for the hemorrhaging business.
Initially, Tesla expects to produce 250,000 vehicles from its Shanghai plant, doubling that at some point in the future. Through the end of September, Nio’s delivered a total of 23,689 vehicles in both 2018 and 2019. This is less than one-tenth the amount Tesla is targeting on an annual basis.
With October’s sales reversing course, if the trend continues, it isn’t going to be Tesla that suffers the most damage from a cautious Chinese consumer.
The Bottom Line on Nio Stock
My InvestorPlace colleague Tom Taulli recently mentioned the deal Nio announced in conjunction with Intel (NASDAQ:INTC). This will see the chipmaker’s Mobileye unit partner with Nio “to help create and mass produce a system for level-4 self-driving for its own vehicles and ride-hailing services.” However, Taulli argues that it isn’t going to be nearly enough to keep the wolves from the door.
As Taulli points out, the company’s burning through cash at such a rate, any future equity or debt financing arrangements will be highly one-sided for the entity providing the lifeline and terrible for current shareholders.
The fact is, Nio’s Altman Z-Score, a predictor of future bankruptcy, is -4.45 at the current moment. That’s nowhere near where it needs to be to give investors a warm, fuzzy feeling.
I wish I had better news for shareholders of Nio stock. But you can’t put lipstick on a pig.
As Don Merideth used to sing on ABC’s Monday Night Football, “Turn out the lights, the party’s over!”
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
